Canada retail sales slip unexpectedly in July

OTTAWA (Reuters) - Canadian retail sales fell unexpectedly in July from June after two months of robust gains, pointing to a sluggish recovery in consumer spending as the economy pulls out of recession.

Sales dropped 0.6 percent in the month, pushed lower by a drop in gasoline prices and a fall in sales in supermarkets and home electronics stores, Statistics Canada said on Tuesday.

The result was a disappointment for markets, which had expected a 0.6 percent jump, and followed increases of 1.0 percent and 1.1 percent in June and May, respectively.

In volume terms, overall sales slipped 0.1 percent. Compared with July 2008, they were down 4.9 percent.

"No forecaster expected a headline drop in sales, let alone such a large and broadly based hit," said Derek Holt and Karen Cordes of Scotia Capital in an e-mail note.

The Canadian dollar weakened following the retail sales report. It fell as low as C$1.0718, or 93.30 U.S. cents, from C$1.0677, or 93.66 U.S. cents, just before the report. This was still up from Monday's close of C$1.0775. or 92.81 U.S. cents.

The economy grew in June after 10 months of contraction and economists expect the gradual expansion to continue in July, despite the bad news for retailers.

"It is clear that the Canadian economy continues to improve, but consumers appear slow to go out on a limb and purchase to the same degree that they once did," said Charmaine Buskas, senior economics strategist at TD Securities.
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